Things are not looking too good for the state of California. There is the issue of the $68 billion budget deficit. It is forcing the Democrat leaders to cut spending as the mass exit of people and businesses intensifies.
According to California’s non-partisan Legislative Analyst’s Office (LAO) report, the state’s budget deficit has grown exponentially. And it has taken only a few months. It is now up more than $54 billion from just $14.3 billion in June.
This deficit is not the largest California has ever faced as a percentage of overall spending. However, it is the largest in terms of real dollars. The LAO’s report doesn’t mention the billions in tax revenue lost due to the departure of people and businesses.
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However, it says a change in the state tax filing deadline caused the massive deficit increase and lower revenues. There is also the issue of a poorer-than-expected economic condition.
According to IRS data from May, California lost $29 billion in tax revenue in 2021 after suffering a loss of $18 billion in 2020. The LAO suggested the state use its $24 billion in cash reserves to remedy the growing deficit.
It also advised the state to reduce spending on schools and community colleges. This called for one-time spending cuts and shifting costs without impacting core services.
The LAO urged the legislature to “exercise some caution” should it take such measures. The cash reserves would likely be insufficient to cover California’s multi-year $30 billion average deficits. The agency suggested that a long-term fix would be to either increase revenue, cut more spending, or both.
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California witnessed its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic.
Between January 2020 and July 2022, the state lost over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.
The current deficit crisis is forcing hard choices for Democratic Governor Gavin Newsom in his final term as he strives to build his national profile. He needs to get people to stay, but that has become very difficult with all that is happening.
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California has been struggling since 2022 because of the rising prices of goods and services and how the U.S. government has attempted to control it. It is now costly for people and businesses to borrow money, meaning fewer people are buying homes and fewer businesses are looking to hire workers.
This led to more occasional tax collections for the state at a time when it needed every penny. All hopes fall on the governor as he strives to rectify things, but one thing is sure: the residents of California are in for some tough times.
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